Pension accounts don't need to sell assets in 2013

SPRINGFIELD – Stable state funding over the last two years meant key state employee pension funds didn’t have to sell assets to meet payments in 2013, according to a report released Thursday.

The State Retirement Systems, covering pensions for ex-state employees, judges and lawmakers, withdrew $29.7 million in 2013, down 88 percent from $248.7 million a year earlier, Auditor General William Holland wrote in an annual financial audit of the Illinois State Board of Investment.

The nearly $30 million withdrawal in the fiscal year that ended June 30 is small enough for the Board of Investment to absorb with cash flow, said William Atwood, executive director of the Illinois State Board of Investment, which manages the SRS portfolio.

But when withdrawals hit hundreds of millions of dollars, it means selling assets, such as stocks and bonds, highly liquid securities that make up about 80 percent of the board’s $12.9 billion portfolio, he added.

The bottom line is, the more a pension system has to withdraw from its portfolio, even if it’s paid back down the line, the more taxpayers are going to have to pick up in the future because the money isn’t benefiting from compounded interest.

Atwood said the situation should only improve if recent pension reform legislation holds up.

“Portfolio success is contingent on having assets to invest,” Atwood said. “ ... The main issue in managing a portfolio is, leave as much money in there as possible so it will grow. I think that’s the approach policymakers are taking.”

The state’s five pension systems – including public school teachers and university employees not under the SRS umbrella – are $100 billion in debt, thanks to decades of underfunding by state lawmakers and governors.

But after years of debate, Gov. Pat Quinn signed into law a repair plan that cuts benefits to pensioners but reduces their contribution and includes measures to ensure the state lives up to its future obligations.

However, public employee unions have threatened to file a lawsuit claiming the law is unconstitutional.

Adding to the brighter landscape is an improved economy and market. The Board of Investment’s portfolio is up 14 percent from $11.3 billion a year earlier.

The state’s largest pension fund, the Teachers Retirement System, has seen improvement in its portfolio as well, sitting at just under $41 billion this fall, spokesman Dave Urbanek said.

That’s lower than the 2007 total but up 44 percent from a recent low of $28.5 billion in 2009.

The improvement hasn’t spared the teachers’ system from selling assets. It has routinely sold more than $1 billion a year since 2005, Urbanek said, topping out at $2.8 billion in 2011 because of short state funding and reverberations of the 2008 economic downturn.

“We get cash from the state contribution,” Urbanek said. “If it’s not there, we have to sell assets to get cash. When the economy is bad, we have to sell more.”